Advanced Management Accounting Scott s Hospitality Inc Case study

Advanced Management Accounting Scott‘s Hospitality Inc. Case study Johannes Doering Konstantin Khoroshkov Diana Popova Pavel Potapov 11. 02. 2018 Advanced Management Accounting Chief Executeve Officer: Prof. Dr. Marc Steffen Rapp Chairman: Daniel Powell 1

Contents 1. 2. 3. 4. 5. 6. Current situation at SHI. Company profile Overview of divisions Current economic performance Value-based approach Evaluation of options Executive summary 11. 02. 2018 Advanced Management Accounting 2

Current situation at SHI • Main challenge: to complete the mission of SHI • In order to improve stock performance of SHI: introduce sophisticated and comprehensive performance metrics • New approach: Valuebased evaluation, EVA® 11. 02. 2018 Mission of SHI: to build sharholder wealth by operating profitably as an international consumer services company Advanced Management Accounting 3

SHI in brief Consumer service company est. in 1937 11. 02. 2018 CA, UK, USA 18, 300 emploees listed on the toronto and montreal stock exchanges Market Cap: 470$ mln Advanced Management Accounting Food Services, Transportation, Hotels Sales 845$ mln 4

SHI in brief ? Sales by country Sales by division 21% 17% 53% 26% 28% Canada UK USA 11. 02. 2018 Advanced Management Accounting 55% Food Services Transportation Hotels 5

Overview of divisions (1) Food Services KFC (franchising agreeement) • The largest franchisee in the world • Increase in the amount of capital empoyed (renovations and enhancements in the KFC restaurants made) Perfect Pizza • Acquisitions in Pizza businesses • Basically in the UK Manchu Wok 480 • Reported unseccussful performance 462 Sales generated by division (in mln $) 11. 02. 2018 1994 1995 Advanced Management Accounting 6

Overview of divisions (2) Transportation • 3 rd largest school bus operator in the North America • Canada, USA • Huge investments made (1994) • Acquisition of additional 476 vehicles and associated routes for 25. 8 $ mln 12. 1% increase in revenue of the division. • Benifits from privatization. Sales on the rise! • USA - only one-third operated by private companies. Canada - public expenditures tend to decline due to constrained budget. Outlook? 11. 02. 2018 Advanced Management Accounting 7

Overview of divisions (3) Hotels • 16 Hotels in the UK, constantly growing market • Increase in sales reported (19%) • Benefits from Mariott Corp. Licensing • Exclusive right to develop a Marriot and Courtyard hotels in Great Britain for the next 10 years, plus further advantages. 11. 02. 2018 Advanced Management Accounting 8

Food services • Leading position • Established brand • Perfect reputation SW • possible increase in average spending per customer due to increase of assets 11. 02. 2018 OT Advanced Management Accounting • poor performance • the lowest EVA momentum as well as Ro. IC • very poor performance of chinese restaurant chain Manchu Wok • fearse market competition. Mature business model 9

Hotels • brand recognition and benefits from licensing agreements • Marriot computerized reservation system • Exclusive rights to develop hotel chain in the UK, guidance, support and expretise provided by principal 11. 02. 2018 SW OT Advanced Management Accounting • Low profit margins • destructive growth • Macroeconomic stagnation • dependcy on business cycles 10

Transportation • Leading market position, experience and expertise • Ongoing privatization in the USA 11. 02. 2018 SW OT Advanced Management Accounting • Mature market • Large amounts of accounts receivable • Demographic issues • Pressure imposed on municipalities from above (budget constraints in Canada) 11

Key Performance Indicators SALES 1, 000 800, 000 Hotels 600, 000 Transportation Food services 400, 000 Firm's Sales 200, 000 0 1993 1994 1995 EBIT 100, 000 80, 000 Hotels 60, 000 Food services 40, 000 Transportation 20, 000 Firm's EBIT 0 -20, 000 11. 02. 2018 1993 1994 1995 Advanced Management Accounting 12

Key Performance Indicators Ro. E 8. 80% Ro. S 4. 35% 3. 85% 7. 80% 3. 35% 6. 80% 1993 1994 1993 1995 1994 1995 Ro. IC 14% 12% Hotels 10% 8% Firm's Ro. IC 6% Food services 4% Transportation 2% 0% -2% 11. 02. 2018 1993 1994 1995 Advanced Management Accounting 13

EVA Calculation • Capital charges Adjustments to NOPAT Adjustments to Invested Capital Interest on operating leases Present value of operating leases Increase in deferred tax liability Deferred tax liability 11. 02. 2018 Behavioral Finance 14

EVA Momentum Calculation • “EVA Margin” “Profitable growth” (Productivity) (Profitability weighted sales growth) 11. 02. 2018 Advanced Management Accounting 15

Economic Value Added EVA 1995 1994 -70000 -60000 -50000 -40000 Transportation Food Services 1994 -80000 Hotel 1995 -30000 -20000 -10000 Firm 0 10000 20000 EVA Momentum Hotel Transportation 1995 Food Services 1995 Firm 1994 -2. 00% 11. 02. 2018 1994 0. 00% 2. 00% 4. 00% 6. 00% Advanced Management Accounting 8. 00% 10. 00% 12. 00% 16

25% 20% Destructive Growth Sales Growth Profitable Growth Grid 15% 10% Valuable Growth Firm Food Services 5% Transportation 0% -30% -25% -20% -15% -10% -5% Strategic Retrenchment 0% 5% 10% 20% EVA Margin -5% -10% 15% Hotel Fading Star -15% 11. 02. 2018 Advanced Management Accounting 17

EVA Forecast 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 (95, 000. 00) 11. 02. 2018 (75, 000. 00) (55, 000. 00) (35, 000. 00) Advanced Management Accounting (15, 000. 00) 5, 000. 00 18

Рапп, мы Вас любим! 11. 02. 2018 Advanced Management Accounting 19